Mike Entzminger was at a charity golf tournament in the Valley when he noticed DHL’s high-profile push to take a bigger chunk out of the $22 billion U.S. package delivery market.
Avnet, a east Phoenix-based distributor of semiconductor and electronics products, organized the event and invited customers, including Entzminger.
"DHL handles very, very little of their products and they came in there big time," said Entzminger, a Scottsdale resident and CEO of Mach 1 Air Services in Tempe, a freight forwarder that uses commercial planes to send shipments.
"They gave an $18 golf umbrella to every player, and they gave a golf towel to every player. I was quite shocked. UPS would never do that. FedEx had one guy over there and UPS didn’t even attend this year. You’ve got all the executives there so, to me, that’s money well spent. They’re aggressive as all it get out . It’s like anything else, it’s an investment, but I think in a couple of years it will pay monster dividends."
The umbrellas, in DHL’s trademark bright red and Big Bird yellow, are a small part of a six-month, $150 million advertising and marketing campaign to boost its business domestically. Most noticeable are the company’s commercials depicting DHL delivery drivers always a step ahead of the competition.
The German delivery company has operations globally, and it has increased is presence in the East Valley. DHL completed a merger with Airborne Express more than a year ago, and this summer it announced it would spend $1.2 billion to increase its 6 percent market share in North
"We’re going to see growth everywhere in the United States, specifically in the ground delivery market," said Robert Mintz, DHL spokesman.
To go after Big Brown and FedEx, DHL opened four regional sorting centers, including one in Memphis, Tenn., where FedEx is headquartered. Three more centers will be announced before the end of the year, and another five will open over the next few years, Mintz said.
Locally, DHL has a customer service call center on Washington Street in Tempe that employs 600. In north Scottsdale, the company expanded its 24-hour data information center last year by moving into a 52,000 square-foot building at Koll Perimeter Center near Loop 101 and Bell Road.
The center, which employs nearly 1,200, is one of three worldwide that manage and monitor all the company’s worldwide deliveries. The others are in Kuala Lumpur, Malaysia, and London.
Based in Plantation, Fla., DHL also maintains a hub at Phoenix Sky Harbor International Airport for deliveries to Mexico.
The company’s goal is to increase its U.S. market share to between 15 percent to 20 percent over the next five to seven years, a target that some industry watchers think is achievable.
Arizona State University professor Arnold Maltz, an expert in supply chain management, said DHL’s deeppocketed owners and international business make the company’s aim reasonable. DHL is owned by Deutsche Post World Net, a $27 billion parent that has a postal monopoly in Germany and is the world’s largest airfreight carrier. In the Americas alone, company revenue last year was $7 billion.
"DHL has a very strong overseas presence," Maltz said. "They have significant (market) share everywhere outside the United States and they are very competitive with UPS and FedEx, and may even be ahead of them in a number of areas, especially Europe."
Combining with Airborne gives DHL a number of working hubs that allow it to serve customers domestically, he said.
"The U.S. market is becoming more international by the week and that means DHL will be able to go to its international customers and say ‘Can we have your business inside the United States?’ That should be a reasonable play as long as they implement the increases in coverage and facilities that they have on the boards in this country. It’s a straight strategy thing," Maltz said.
Donald Broughton, a Wall Street analyst at A.G. Edwards and Sons who tracks FedEx, isn’t as sure the DHL effort will work.
"The first thing to have to do is make people aware of the service, then they have to actually use it and then they have to have a positive experience," he said. "They’ve gone a lot uphill fight on their hands in a marketplace in which you have two excellent service providers."
He predicts the company will may make a dent in the market, but it won’t be very meaningful.
"When FedEx attacked UPS on the ground or UPS attacked FedEx in the air, there was a need for an alternative, but in the current environment, the shippers already have alternatives," Broughton said. "They have two of them other than the post office. The economic utility of additional alternatives is less."
Some analysts wonder if the company’s effort to grow in the United States will be hurt by the need to cut rates to compete. Others say the lower rates will lead to more volume than DHL can handle.
DHL’s competitors have fought hard for years to keep the company out of the United States.
"It’s the German post office," said Dan McMackin, UPS spokesman."It has a government-sponsored monopoly on the delivery of letters. As it happens, the German Post Office has the second-highest stamp price in the world. The reason that’s important to us and should be to consumers is it’s like our post office, they crosssubsidize. In the private sector, it’s illegal. They take some of the monies from the cost of stamp and the put them into . . . the rate they charge for you to ship a package. They can actually come into a market here and undercut a competitor by doing that."
FedEx and UPS asked the U.S. Department of Transportation to cancel DHL’s registration arguing the post office profits amounted to predatory pricing in the United States. The department threw out the case finding no evidence of "any unfair competition in the U.S. market by any of these DHL companies," Forbes reported.
McMackin said UPS, which has distribution centers in Mesa and Tempe, also lost an appeal in front of the European Union. The company, along with FedEx, had argued DHL, after buying Airborne, could not do business in the United State because it was not a 50 percent owned American company.
With its regulatory appeals seemingly exhausted, UPS and FedEx say they will beat DHL with service.
"Our customers have come to expect a certain level of service that we have provided and can provide and that’s our response to any question about a new competitor," McMackin said, adding UPS has expanded its warehousing and other capabilities to include everything from fixing computers and tuning Fender guitars to shipping and tracking all of Ford’s cars and creating its own capital company to finance other businesses.
Jess Bunn, a FedEx spokesman, said his company has no fear of increased competition.
"The fact is we believe DHL is trying to foster a misconception because . . . we have been competing with DHL and Airborne for years," he said. "They would like to portray it otherwise. We regard that as at least somewhat misleading if not outright incorrect."
In an effort to allow there customers to find them more easily, FedEx purchased Kinko’s earlier this year after UPS snatched up Mail Boxes Etc. about three years ago. DHL has drop-off centers in 990 OfficeMax stores in the United States and and its services are offered at 4,000 shipping stores.
But Mach 1's Entzminger said efforts by UPS and FedEx to diversify have hurt.
"The service with FedEx Ground and UPS Ground, I think it’s deteriorated because they’ve gone into so many other directions," he said, adding his company always used Airborne to send its overnight envelopes. "There’s all kinds of value DHL can add just by not being quite so rigid."
So far, FedEx, which was traditionally an air freight hauler, is making the most strides in the ground market. Last year FedEx Ground package and less-thantruckload freight services gained market share according to the Colography Group, a third party that keeps track of market share in the industry.
FedEx’s ground package unit captured 14.8 percent of the market in 2003, up from 14 percent in 2002. UPS’s share of U.S. domestic ground parcel shipments fell from 70 percent to 69.3 percent, still making it the dominant provider.
Market share held by the U.S. Post Office and the category labeled "all others" remained virtually flat year over year. Airborne/DHL and the "all others" category accounted for about 16 percent of shipments, Colography said.